The Path to IPO: 7 CFO Tips

The role of the finance leader is evolving, bringing with it a broader set of responsibilities and impact within the organization. This is especially true for CFOs who are planning to take their company public.


At the CFO Leadership Conference in Boston earlier this month, Mike Ellis, who was named by the Boston Business Journal CFO of the Year, offered an inside look into how a CFO prepares a company for an initial public offering and life as a public company.


Ellis led Flywire, a global payments software company, through its IPO in March 2021. Ellis had never led an IPO before, despite being a self-described "classically trained CPA" with years of experience as a CFO and controller. Ellis called going through the process “a lot of fun but hard work.” Below are his seven pieces of advice that can help chief financial officers handle some inevitable challenges.


1. KPIs and metrics are critical.

“There are two things you’re going to get beat up for as a CFO of a public company: your ability to forecast and the credibility you bring communicating your metrics to Wall Street,” said Ellis. Management should not rely solely on the measures it has previously reported to investors; the metrics may have to improve. It's vital to have the company's KPIs right before the roadshow. “Once you give a KPI to a public investor, you never get to take it away, you have to give that calculation, and it has to be consistent every time, month in and month out,” Ellis said.


2. Use the term 'exit' sparingly.

An IPO is not a "exit," said Ellis, who admits that using the term to describe an IPO is a pet peeve of his. He explained, "The company is preparing for a new birth; an IPO is only an exit for the existing shareholders."


When speaking with employees, Ellis advised against using the word. “The only thing that’s changing is the company will have new shareholders and a lot more diligence,” he said.


3. Be ready.

The most important question the CFO will be asked before an IPO or any capital raise is, "Are we ready?" said Ellis. “The worst thing that can happen to any CFO is to attend the board meeting, and the investment bank says, ‘You have a great business. But you’re not ready,’” Ellis said.


How do you make sure that doesn't happen? By putting in place the necessary tools, systems, and controls (along with the right people on the finance team) 12 to 18 months before the organization starts the process, said Ellis. “You have to be prepared before you even get asked that question.”


4. Seek assistance from other finance executives.

Seeking assistance from other CFOs, particularly those with expertise running public companies, is an important element of preparation, especially if this is the CFO's first IPO. Questions will pop up about issues like compensation, public company governance, or dealing with the board of directors, for example.


After four quarters as a public company CFO, Ellis still regularly calls a fellow, more experienced public company CFO. “This is where some CFOs tend to be introverted,” explains Ellis. “Get out of your comfort zone, talk to people, reach out to that CFO on LinkedIn that you remember from 10 years ago.” An individual CFO doesn’t know everything, he said. And “people like to help — it makes them feel good. And you get value out of it — it challenges the way you’re thinking.”


5. Get your ‘House’ in order early on.

It goes without saying that having a solid and comprehensive financial foundation in place prior to making a public debut is not something you should take lightly. IPOs, direct listings and SPACs require both historical and real-time access to financial and operational data in order to satisfy investors, inform decision making, and act as a guide for sustainable business strategies.


Companies that want to go public must be able to give three years of audited financial data, which means their systems must be able to do so. Solid debt-to-equity ratios, sufficient market capitalization, and predictable revenue and earnings streams will all appeal to investors and underwriters.


If there's one thing Ellis regrets about Flywire's IPO preparations, it's not amping up the tax function sooner. “There were a lot of tax exposures that I had no idea existed,” he said. However, Ellis did a good job of planning the FP&A function ahead of time. “That was critical, as we built credibility with the board of directors and our investment bankers,” he said. A solid FP&A function means finance can communicate the business’s long track record of meeting performance goals.


6. Be prepared to “sell” the story.

When Flywire was testing the waters and honing its roadshow presentation, the CEO advised Ellis that he needed to "sell more." During a roadshow, the CFO has to “spin, sell, and move the conversation,” Ellis said. The only way a CFO can do that is by being prepared, he said. “You have to know the information. Read the script, rewrite the script, reread it, rewrite it again, commit it to memory,” said Ellis.


7. You can do it.

“There’s nothing more frustrating than when someone tells me, ‘You can’t do that,’” said Ellis. But the board of directors will inevitably ask if you are the right CFO to take the company public.


“Should we get someone who’s already done it before?” is a question a private company CFO should be prepared to hear. A good response? “Yes, I am ready, and I want your support,” said Ellis.


The CFO should position himself so that the board and the rest of the executive management team are aware that he or she is considering business optionality. “Build yourself up over time to go after [taking the company public], if that’s what you want,” said Ellis. “Act like the company is public today, have that mindset,” he advised.


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